Boehner abandons efforts to reach comprehensive debt-reduction deal

House Speaker John A. Boehner abandoned efforts Saturday night to cut a far-reaching debt-reduction deal, telling President Obama that a more modest package offers the only politically realistic path to avoiding a default on the mounting national debt.

On the eve of a critical White House summit on the debt issue, Boehner (R-Ohio) told Obama that their plan to “go big,” in the speaker’s words, and forge a compromise that would save more than $4 trillion over the next decade, was crumbling under Obama’s insistence on significant new tax revenue.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes,” Boehner said in a statement released less than 24 hours before the White House meeting was scheduled to begin. “I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”

Boehner’s decision leaves negotiators reexamining a less-ambitious framework — aimed at saving roughly $2.4 trillion over the next decade — that had been under discussion between Vice President Biden and a bipartisan group of lawmakers. But that framework is hardly complete; the group broke up last month when Republicans walked out over the tax issue.

The sweeping deal Obama and Boehner had been discussing would have required both parties to take a bold leap into the political abyss. Democrats were demanding more than $800 billion in new tax revenue, causing heartburn among the hard-line fiscal conservatives who dominate the House Republican caucus. Republicans, meanwhile, were demanding sharp cuts to Medicare and Social Security, popular safety net programs that congressional Democrats have vowed to protect.

Obama, at least, was willing to make that leap and had put significant reductions to entitlement programs on the table. But on Saturday, Boehner blinked: Republican aides said he could not, in the end, reach agreement with the White House on a strategy to permit the Bush-era tax cuts for the nation’s wealthiest households to expire next year, as lawmakers undertook a thorough rewrite of the tax code.

“We cannot ask the middle-class and seniors to bear all the burden of higher costs and budget cuts. We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree,” White House communications director Dan Pfeiffer said in a statement.

“Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington.”

The Sunday meeting at the White House will go on as scheduled, and Pfeiffer said Obama will continue to press for a broad deal aimed at stabilizing the soaring national debt. Without such a plan, lawmakers in both parties have said they will not vote to grant the U.S. Treasury additional borrowing authority.

Unless Congress acts to raise the $14.3 trillion legal limit on the debt, Treasury Secretary Timothy Geithner has said that the government will begin to default on its obligations after Aug. 2.

The Biden framework, which he crafted with key Republicans, including House Majority Leader Eric I. Cantor (R-Va.), includes cuts to federal agency budgets and more modest changes to government health programs. It would not tackle the rising cost of Social Security. Negotiators had managed to reach tentative agreement on only about $1.5 trillion in savings, according to aides in both parties — short of the $2.4 trillion Boehner is demanding in exchange for an increase in the debt ceiling that would pay the nation's bills through spring 2013.

Ironically, it was Boehner who cajoled Obama into pushing for the big deal. His Saturday night announcement capped a whirlwind courtship between the two men, beginning with a casual round of golf at Andrews Air Force Base on June 18.

A series of secret meetings followed, culminating in a decision to push for a landmark debt-reduction deal. Both leaders believed that divided government — with Republicans in charge of the House and Democrats holding the Senate and the presidency — might provide an opportunity to demonstrate that bipartisan cooperation was still possible on a grand scale.

A deal to slice more than $4 trillion in borrowing over 10 years would be, by far, the largest debt-reduction package in at least two decades. The plan would have struck at all the major drivers of government spending, from Social Security and Medicare to the Pentagon.

The emerging deal, however, quickly appeared to be collapsing under its own ideological weight. Liberals were outraged by Obama’s offer to rein in entitlement spending, particularly Social Security, which congressional Democrats believed would not be a part of the debt-reduction effort. The White House had offered to change the measure of inflation used to calculate Social Security payouts, a shift that could save more than $100 billion over the next decade, according to congressional budget analysts.

Conservatives, meanwhile, were uniformly opposed to raising taxes. That resistance has proved to be the biggest obstacle to a compromise of any size.

In private negotiations with the White House last week, Boehner dangled a tax deal that he thought might bridge the divide. Republicans would immediately extend the Bush tax cuts for middle-class households, leaving the cuts that benefit the nation’s wealthiest taxpayers on track to expire next year. That would have been a huge win for Democrats, whose liberal base views ending tax cuts for the rich as a top priority — and one that Obama has failed to deliver.

Democrats, in turn, would agree to a rewrite of the tax code by the end of the year, to lower rates for everyone, a top GOP priority. As recently as Friday, the speaker’s office and the White House were trading proposals, trying to reach agreement before the Sunday meeting with other top congressional leaders.

People in both parties said talks broke down over tax reform: On Friday, the White House said changes in tax law must not shift the tax burden more heavily onto households earning less than $250,000 a year. After that, suddenly things went dark, said an administration official, speaking on the condition of anonymity to discuss private negotiations.

Some Republican aides said the deal was simply not good enough, in part because Obama refused to cut entitlement programs deeply enough to restore them to solvency. They also complained that, as part of a mechanism to force lawmakers to overhaul the tax code, the president wanted a trigger that would automatically raise taxes if tax legislation was not enacted by the end of this year.

But other Republicans said Boehner had finally realized that he could not sell the tax framework within his party. Many House Republicans, particularly the influential 87-member freshman class, won elections vowing to never raise taxes. At a Thursday meeting at the White House, Cantor said the tax package could not pass the House. And at a Friday morning news conference, every member of Boehner’s leadership team denounced the idea of including tax increases in the debt legislation.

Meanwhile, Republican presidential candidates have been putting additional pressure on Boehner. Rep. Michelle Bachmann (R-Minn.) vowed in her first campaign ad to never vote for any debt-ceiling increase, no matter what provisions were attached to it.

On Saturday, top Republicans offered tepid support for Boehner’s decision. Don Stewart, spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), said McConnell, too, “remains concerned with the Democrats’ unwillingness to take steps to protect entitlement programs from bankruptcy.”

Cantor spokesman Brad Dayspring said in a statement: “The tax increases that the Democrats are insisting upon cannot pass the House and are the last thing Congress should do with so many people out of work. Eric has always believed the Biden group identified between $2 and $2.5 trillion in spending cuts that could represent the framework for an agreement.”

Boehner’s announcement makes the Sunday evening White House summit all the more critical, as Obama, Biden and congressional leaders must quickly formulate a new plan for avoiding default. Senate Majority Leader Harry Reid (D-Nev.) has said a deal must be sealed by the end of this week to leave sufficient time for Congress to pass it.

Though widely hailed as extremely productive, the Biden group also encountered major obstacles. The Biden package so far involves more than $1 trillion in cuts to government agencies, about $200 billion in reductions to Medicare and Medicare, and another $200 billion from other direct-payment programs, such as farm subsidies and federal employee pensions. It would not touch Social Security, in deference to Democratic demands.

The Biden negotiators were stymied, however, over the issue of revenue. Obama had proposed an increase of more than $400 billion, including new limits on deductions for the wealthy and elimination of a raft of corporate tax breaks benefiting hedge fund managers and corporate jet owners, among others.

Cantor and other Republicans refused to consider closing any tax breaks unless they were offset by tax cuts elsewhere. The group was also fighting over Democratic demands for a “firewall” between domestic and military spending that would guarantee that the Pentagon absorbed its share of the fiscal pain.